{ "title": "Saudi Arabia: Staff Concluding Statement of the 2023 Article IV Mission", "publication": "IMF News, June 7, 2023", "sourceUrl": "https://www.imf.org/en/news/articles/2023/06/06/saudi-arabia-staff-concluding-statement-of-the-2023-article-iv-mission", "canonical": "https://www.imf.org/en/news/articles/2023/06/06/saudi-arabia-staff-concluding-statement-of-the-2023-article-iv-mission", "overlayPath": "/en/news/articles/2023/06/06/saudi-arabia-staff-concluding-statement-of-the-2023-article-iv-mission/index.md", "summary": "Saudi Arabia was the fastest growing G20 economy in 2022. Overall growth reached 8.7 percent, reflecting both strong oil production and a 4.8 percent non-oil GDP growth driven by robust private consumption and non-oil private investment, including giga projects.", "publishDate": "2023-06-07", "sections": [ { "heading": "Recent economic developments", "content": "- Overall growth in 2022 reached 8.7 percent, making Saudi Arabia the fastest growing G20 economy in 2022.\n- Non-oil GDP growth in 2022 was 4.8 percent, driven by robust private consumption and non-oil private investment, including giga projects.\n- Main drivers of non-oil growth: wholesale, retail trade, construction, and transport.\n- The output gap is estimated to have closed during 2022 and momentum continued into 2023; nowcasting estimates suggest non-oil growth above 5 percent in H1 2023.\n- Unemployment:\n - Total unemployment dropped to 4.8 percent by end-2022 (from 9 percent during Covid).\n - Youth unemployment was halved to 16 percent in 2022 over the past two years.\n - Female labor force participation reached 36 percent in 2022, exceeding the 30 percent target under Vision 2030.\n- Inflation:\n - Average CPI grew by 2.5 percent y-o-y in 2022.\n - Inflation upticked to 3.4 percent y-o-y in early 2023 and was 2.7 percent y-o-y in April 2023.\n - Declining contributions from transport and food prices offset substantial increases in rent.\n- Current account and reserves:\n - Current account recorded a 13.6 percent of GDP surplus in 2022—the highest in a decade.\n - Reserves fell by $30 billion in April 2023 relative to 2022 but remain at comfortable levels (about 20-month import cover)." }, { "heading": "Economic prospects — positive outlook with balanced risks", "content": "- Growth projections and drivers:\n - Overall real growth in 2023 reduced to 2.1 percent due to the April 2023 OPEC+ production cuts.\n - Non-oil growth expected to average 5 percent in 2023 and remain above potential.\n- Inflation outlook:\n - Average CPI in 2023 expected at 2.8 percent.\n- External sector and reserves:\n - Improvement in the current account is expected to abate as oil prices stabilize and imports pick up.\n - Reserves expected to stabilize at slightly lower levels of import coverage over the medium term, but remain well above standard reserve adequacy metrics.\n- Risks to the outlook:\n - Upside: higher oil prices, possible change in OPEC+ production cuts, accelerated structural reforms and investment.\n - Downside: too rapid rise in non-oil investment adding pressure on prices and external accounts; lower oil prices due to subdued global activity; quicker shift in demand for fossil fuel hampering medium- to long-term growth." }, { "heading": "Fiscal policy — maintaining the path for stronger buffers and intergenerational equity", "content": "- 2022 fiscal outcomes:\n - Fiscal surplus in 2022—the first since 2013—was halved relative to staff’s initial projection of 5.5 percent of GDP.\n - About 2.5 percent of GDP of additional expenditures were estimated to be one-off non-recurrent spending (about half in goods and services).\n - Public debt at 23 percent of GDP is low and sustainable.\n- 2023 fiscal dynamics:\n - Lower oil revenue would shift the fiscal surplus back to deficit.\n - Robust non-oil revenue and lower spending (mostly from one-off expenditure cuts) would improve the non-oil deficit, which would however remain considerably higher than budgeted.\n - Potential additional dividends from Aramco could improve the fiscal position.\n- Staff recommendations (policy measures and reforms):\n - Prioritize non-oil revenue collection.\n - Tax reforms: at least maintain the VAT rate at 15 percent and rationalize tax expenditures; strengthen tax administration.\n - Energy price reforms:\n - Go further by lifting the cap on gasoline prices and adjusting the current formula to allow faster increases for electricity and other fuel prices.\n - Note: diesel price increase implemented already in 2023.\n - Strengthen the safety net:\n - Scale up well-targeted social programs—such as the needs-based Damaan program.\n - Support through savings from a narrower coverage of the existing Citizens’ account program.\n - Expenditure rationalization priorities:\n - Continue rationalizing the public sector wage bill via strategic workforce planning and review.\n - Improve efficiency in public investment via Spending Efficiency and Governmental Projects Authority and full utilization of the expenditure chain (ETIMAD).\n - Strengthen fiscal frameworks:\n - Strict application of a fiscal rule to avoid sudden jumps in spending that deviate from the medium-term fiscal framework (MTFF) and be based on a long-term fiscal anchor.\n - Strengthen the MTFF, improve budget forecasting and cash management, strengthen disclosure and broaden public sector coverage—including for the Saudi Arabia Sovereign Wealth Fund (PIF) and the National Development Fund.\n - Accelerate development of a sovereign asset-liability management (SALM) framework and establish a public sector balance sheet to monitor sovereign exposures integratedly and assess future investment commitments." }, { "heading": "Monetary policy — managing liquidity and supporting the exchange rate peg", "content": "- Liquidity and interest rates:\n - Liquidity squeezes in 2022 eased after central bank intervention.\n - Three-month Saibor-Libor spreads widened to over 150 basis points during June and October 2022; spreads have normalized to historical averages.\n- Exchange rate policy:\n - The exchange rate peg to the US dollar remains appropriate and has supported monetary stability.\n - With an open capital account, policy rates should continue to move in line with the Fed policy rate, with risk premia ensuring appropriate interest rate differential to support the peg.\n- Monetary framework recommendations:\n - Continue aiming to keep the interbank rate in line with the policy rate using market-based instruments (such as open market operations).\n - Improve liquidity forecasting and coordinate with all institutions, including calibration of the ongoing implementation of the Treasury Single Account." }, { "heading": "Financial sector policies — remaining vigilant", "content": "- Banking system soundness:\n - Aggregate capital adequacy ratio is strong.\n - Profitability—driven by net interest margins—is high and above pre-pandemic levels.\n - NPL ratio is low and declining.\n- Credit and loan dynamics:\n - Mortgages growth has moderated recently; demand for project-related and consumer loans remains strong.\n - Almost no direct spillovers from the collapse of Credit Suisse and several mid-sized US banks.\n- Regulatory and supervisory progress:\n - Rolling out of a risk-based supervisory framework relying on regular ICAAP results.\n - Adoption of IFRS9 requirements for banks.\n - Full implementation of Basel III final reforms with respect to capital requirements.\n - Temporary regulatory measures from 2020 were phased out in 2022 and early 2023 with no impact so far on asset quality.\n - Mission welcomes progress on revising the Banking Control Law and urges its swift adoption.\n- Housing sector risks:\n - Mortgage expansion since 2018 under the Saudi Housing Program; risks from mortgage lending are relatively contained.\n - Most mortgages are subsidized and issued at a fixed interest rate, with full recourse and repayments directly linked to salary assignments.\n- Vigilance and macroprudential guidance:\n - Continue close monitoring of credit underwriting and management, early detection of distress, timely recognition of loan delinquencies, and adequate provisioning.\n - Support thematic onsite inspections by SAMA focusing on corporate loan portfolios and mortgage portfolios.\n - Consider gradually tightening macroprudential guidelines/regulations and phasing out fiscal incentives if credit growth remains strong.\n - SAMA’s ongoing annual assessment of the countercyclical capital buffer is timely." }, { "heading": "Structural reforms — achieving strong, sustained, inclusive, and greener growth", "content": "- Vision 2030 implementation and progress:\n - Mid-way stocktaking identifies progress on digitalization, regulatory and business environment, female labor force participation, and higher private sector investment; some targets for 2030 already surpassed.\n - Ongoing work on Human Capital Development, streamlining fees, higher access to finance, a new investment law, and stronger governance to enhance private sector growth and total factor productivity.\n- Industrial policy and special economic zones (SEZ):\n - National Industrial Strategy aims to reduce reliance on oil via targeted interventions, incentives, and SEZs.\n - Risks from interventions should be minimized with special emphasis on export orientation.\n - Establishment of SEZs should be regularly assessed to ensure effective linkages with the broader economy via technology upgrading and skills training.\n - Monitor tax incentives and include strict exit criteria, claw-back mechanisms, sunset clauses and time-bound incentives.\n- Public investment and project calibration:\n - Careful calibration of investment programs needed to ensure catalytic effects and avoid crowding out the private sector.\n - Improve government project selection, appraisal and feasibility, and adopt a unified public investment management system across the Kingdom, including for giga projects.\n - Apply comprehensive guidelines, including the new central government PPP framework, to all projects funded with government guarantees.\n - Regularly monitor PIF interventions to ensure catalytic effect and avoid crowding out.\n- Green Initiative and emissions targets:\n - Plans to increase renewable energy by an additional 2.1 GW capacity by 2024.\n - Deploy efficiency programs (tarshid), carbon Capture, Usage and Storage technologies, and aim to become the world’s leading hydrogen exporter.\n - Reduce emissions by 278 mtpa by 2030 and attain net zero emissions target by 2060.\n - Staff estimates that eliminating fuel subsidies by 2030 could help achieve a third of the 2030 emissions reduction target.\n - A detailing of specific initiatives linked to each target will help assess progress and necessary adjustments.\n\nSource: Staff Concluding Statement of the 2023 Article IV Mission, June 7, 2023.\n\n---\n\n\n References\n\n- Saudi Arabia and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2023/06/06/saudi-arabia-staff-concluding-statement-of-the-2023-article-iv-mission" } ], "bullets": [ "[Markdown version](/en/news/articles/2023/06/06/saudi-arabia-staff-concluding-statement-of-the-2023-article-iv-mission/index.md)", "[Structured JSON version](/en/news/articles/2023/06/06/saudi-arabia-staff-concluding-statement-of-the-2023-article-iv-mission/index.json)", "[Bundle manifest](/en/news/articles/2023/06/06/saudi-arabia-staff-concluding-statement-of-the-2023-article-iv-mission/bundle-manifest.json)", "Published: June 7, 2023", "Overall growth in 2022 reached 8.7 percent, making Saudi Arabia the fastest growing G20 economy in 2022.", "Non-oil GDP growth in 2022 was 4.8 percent, driven by robust private consumption and non-oil private investment, including giga projects.", "Main drivers of non-oil growth: wholesale, retail trade, construction, and transport.", "The output gap is estimated to have closed during 2022 and momentum continued into 2023; nowcasting estimates suggest non-oil growth above 5 percent in H1 2023.", "Unemployment:", "Inflation:", "Current account and reserves:", "Growth projections and drivers:", "Inflation outlook:", "External sector and reserves:", "Risks to the outlook:", "2022 fiscal outcomes:", "2023 fiscal dynamics:", "Staff recommendations (policy measures and reforms):", "Liquidity and interest rates:", "Exchange rate policy:", "Monetary framework recommendations:", "Banking system soundness:", "Credit and loan dynamics:", "Regulatory and supervisory progress:", "Housing sector risks:", "Vigilance and macroprudential guidance:", "Vision 2030 implementation and progress:", "Industrial policy and special economic zones (SEZ):", "Public investment and project calibration:", "Green Initiative and emissions targets:", "[Saudi Arabia and the IMF](http://www.imf.org/external/country/SAU/index.htm)", "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)", "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)", "[PRESS CENTER](http://presscenter.imf.org/)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "alternates": { "markdown": "/en/news/articles/2023/06/06/saudi-arabia-staff-concluding-statement-of-the-2023-article-iv-mission/index.md", "json": "/en/news/articles/2023/06/06/saudi-arabia-staff-concluding-statement-of-the-2023-article-iv-mission/index.json", "bundleManifest": "/en/news/articles/2023/06/06/saudi-arabia-staff-concluding-statement-of-the-2023-article-iv-mission/bundle-manifest.json" }, "generatedAtUtc": "2026-09-26T02:08:55.656Z" }